Excerpt | Benjamin Franklin and the Birth of a Paper - Federal Reserve Bank ...

Link: http://www.philadelphiafed.org/publications/economic-education/ben-franklin-and-paper-money-economy.pdf

Glossary of Terms

Barter: The direct exchange of goods and services among people. No money is used in the exchange.

Continental dollar: Paper currency issued by the Continental Congress to finance the Revolutionary War. The currency was not redeemable on demand for gold or silver. Congress issued so much of this currency during the war that inflation
became rampant and destroyed its value, which led people to use the phrase: “Not worth a Continental.”

Follow up:

Equilibrium: A situation in which the quantities demanded and supplied in a market are equal. Equilibrium exists when forces that cause changes in the market are in balance so that there is no tendency for the market price to change.

Monetary equilibrium: When the quantity of money supplied is equal to the quantity demanded.

Exchange rate: The value of one currency expressed in terms of another currency.
Fixed exchange rate: A fixed exchange rate is when the value of a currency is fixed by governmental action at some officially determined level in terms of another currency.

Fiat paper money (or Fiat currency): Paper currency that has value because the government has decreed that it is a “legal tender” for making tax payments and often for discharging other debts and payments as well. Fiat money does not represent a claim on some other form of money or commodity such as gold and silver.

Functions of money:

Medium of exchange: Acts as a go-between to make it easier to buy and sell goods or services or pay debts. Allows buyers and sellers to avoid the difficulties associated with barter exchanges of goods and services.

Store of value: Allows people to transfer the purchasing power of their present money income or wealth into the future, ideally without a loss of value. Stores purchasing power between the time money is earned and the time it
is spent.

Unit of account: Serves as a way to measure and compare the value of goods and services in relation to one another. When comparing prices, individuals can determine if one good is a better buy than another. It also allows people to keep accurate financial records.
Inflation tax: The transfer of resources to the government from businesses and consumers that occurs when government spending is financed by printing government-issued money rather than being financed by government taxes or borrowing from the public. When the government obtains goods and services by printing new money and inflation occurs, consumers
and businesses holding money pay an inflation tax because inflation erodes the purchasing power of their money holdings.

Labor value of money: A theory that holds that the value of a good is determined by the value of the labor that went into
making it.

Legal tender laws: Government laws that decree that creditors are required to accept an asset (such as paper money or coins) in settlement of debts and that the government will accept the asset in payment of taxes. When paper money and coins are a legal tender and people use them to settle a debt, the obligation is considered to be paid in full.

Price level: The average level of the prices of products and services purchased by consumers. Proprietor (of Pennsylvania): Pennsylvania was chartered as a proprietary colony under a royal grant to William Penn, making him (and his heirs) the proprietor of the province. William Penn’s son, Thomas Penn, was the province’s proprietor
in the 1750s but had left Pennsylvania and was living in England.

Spot value (or spot price): The value or price at which current transactions of goods and services take place. The spot market is the market in which goods and services are traded for immediate delivery and payment. Purchased or sold “on the spot” as opposed to some later time.